Which nations have exhausted their fiscal capacity?
Changing Perspectives on Fiscal Policy
Prior to the COVID-19 pandemic, inflation remained persistently low, fostering the belief that central banks could maintain low interest rates indefinitely. This assumption led many governments to accumulate higher levels of debt, confident that interest costs would stay manageable. Modern Monetary Theory represents the most pronounced example of this mindset, but its influence has shaped fiscal strategies more broadly. As a result, budget deficits have expanded in numerous countries since the pandemic, despite its conclusion. The perceived freedom to spend collided with the surge in inflation and increased expenditure demands following COVID-19.
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